That industry is the auto industry, and the Obama Administration is yet again using the mighty fist of the federal government to recast it in its own image. The Washington Post reports that the Obama Administration and the auto industry have reached agreement on new federal regulations that would raise fuel efficiency standards for cars and light trucks, hitting an average of 54.5 miles per gallon by 2025—a 40 percent reduction in fuel consumption compared to today.
Those new standards, though designed to reduce greenhouse gases, bring with them significant costs. Fourteen of Michigan's 15 representatives in Congress—including Democrat Senators Debbie Stabenow and Carl Levin—wrote a letter to the President warning him of the consequences that draconian fuel efficiency standards could have for their state, the home of General Motors, Ford, and Chrysler, citing a report by The Center for Automotive Research which warned that overly stringent standards could add $10,000 to the cost of a new car. Heritage's Nicolas Loris explains how those higher costs can lead to job loss:
Higher prices reduce demand and force people to hold onto their older vehicles longer. Reduced demand means fewer cars produced, which means automakers have to shed jobs. The Michigan-based consulting firm Defour Group projected that a 56 mpg standard would destroy 220,000 jobs.
In addition to lost jobs and costlier cars, forcing automakers to achieve those standards could result in a loss of life. In order to make cars more fuel-efficient, automakers reduce the weight of vehicles. As Reason reports, "a 2002 National Academy of Sciences study concluded that CAFE's downsizing effect contributed to between 1,300 and 2,600 deaths in a single representative year, and to 10 times that many serious injuries."
All the costs of the new CAFE standards aside, can the auto industry even achieve the high-mileage goals? Not without massive government subsidies. Reason's Shikha Dalmia explains:
[E]ven the Environmental Protection Agency admits that the market share made up by hybrids and electric plug-ins will have to touch 49 percent if the industry is to come anywhere near compliance. Given that these vehicles now occupy only 3 percent of the market despite hefty subsidies, it is a foregone conclusion that expanding their presence will mean massively expanding subsidies to them.
Has the promise of government subsidies been enough to convince the automakers and the United Auto Workers (UAW) to get on board with the job-killing standards? It sure looks that way. Despite reports that the government has "reached an agreement" with automakers on the new standards, the auto industry initially lobbied against the new rules, going so far as to prepare TV ads against the regulations to run in seven states. Strangely, the ads were pulled a week ago, possibly out of fear of further antagonizing the Obama Administration. And don't forget, the industry faced the prospect of a higher than 60 mpg standard, as reported last October. Given no other option, it looks like they took the lesser of two evils.
The UAW, too, had a change of heart on the regulations. Autoline Daily reports that the UAW met with automakers over its concern that the rule would mean fewer jobs because of its impact on SUV and truck production. But then on July 18, the UAW joined with members of the BlueGreen Alliance—which includes labor unions and environmental activist groups like the Natural Resources Defense Council and the Sierra Club—in calling for increased fuel efficiency standards in a letter to President Obama.
The change in the UAW's position might seem puzzling, were it not for a significant point in the letter. In addition to supporting the fuel efficiency standards, the UAW and the BlueGreen Alliance wrote that they support "federal efforts to assist the industry retool to meet demand for cleaner, more efficient cars." And there's the rub. Going green will require more green from the federal government in the form of cash for retooling—more government subsidies from the Obama Administration. Not surprisingly, the UAW is all for it. A blue-green alliance, indeed.
And there you have it. The Obama Administration is issuing rules—without congressional approval—to significantly change the way the auto industry is doing business, forcing it to make vehicles that few are buying today (only 2,745 Chevy Volts have been sold this year). And in order to achieve that compliance, the Administration will likely have to fund the retooling plants and subsidize consumers' purchase of the high-mileage cars. Meanwhile, the cost of gasoline is going up, yet the President has restricted drilling in the Gulf, leaving the United States unable to tap its domestic oil reserves.
The President's environmental and energy policy is driving in circles. The costs are high, and the American people and businesses will pay the price.